Friends
So here is the recap of today’s market action. First, this morning before the open we got a hot January CPI number hinting that inflation hasn’t yet begun to abate. The hot inflation number caused the yield on the 10-year Treasury Note to move up above 2%. Stocks sold off at the beginning of the trading session but by mid-morning, the losses had mostly been erased and the markets appeared to be shaking off the hot inflation number and the move in bonds. Then late morning comments from St. Louis Fed Chair Bullard regarding his view that the Fed should move rates higher by 1% between now and the June FOMC meeting, sent stocks reeling, and they didn’t recover. Why did the market react to Bullard’s comments so negatively? After all, we know the Fed is going to raise rates this year. Well, Bullard’s hawkish comments give market participants pause because if the Fed is too aggressive in their battle with inflation, they might just kill the economy.
By the close, the Dow Jones Industrial Average was down 526 points to finish the day at 35,241. The S&P 500 was down 83 points to close at 4,504. The Nasdaq Composite Index was down 304 points to close at 14,185. Gold was down $9 to trade at $1,827 per ounce, while oil was up $.22 to trade at $89.88 per barrel WTI.
We’ve been expecting/forecasting volatility for a while now and today’s action is indicative of why. Inflation and a huge Fed pivot is new to most investors. Most market participants have never heard of Paul Volker or the slogan Whip Inflation Now (remember WIN buttons?)
It’s going to take time to see how the Fed proceeds with their pivot, if their pivot will actually have any effect on inflation, and how allocators of capital are going to adjust. We have already seen dramatic moves in stocks over the past several months. We are likely to see moves both up and down continue while this new Fed journey unfolds. As we’ve said the ride will likely be a little wilder this year, so buckle up, keep your hands and feet inside the ride, and we’ll get through it safely.
Have a nice evening everyone.
